Shanghai The number of vacant homes in China is double what the United States experienced at the peak of the sub-prime mortgage crisis, according to new research which catalogues the chronic oversupply of housing in the world’s second-biggest economy.

In a report set to worry already nervous investors, Gan Li from Texas A&M University estimates there are 49 million vacant homes in China. In one of the most comprehensive property surveys ever undertaken, Professor Gan calculates the vacancy rate at 22.4 per cent, double previous estimates from real estate agents and research firms.

“Once expectations change, the high vacancy rate will put lots of pressure on prices and could see them collapse," he said via phone. “A cold winter for the Chinese housing market is coming."

The property sector is the key driver of China’s economy, contributing 15 per cent of GDP in 2013. But investment, sales and prices have all begun to moderate this year as banks tightened credit, contributing to the weak outlook for iron ore prices.

Vacancy rates in the US peaked at about 13 per cent in the third quarter of 2009, according to the Census Bureau, as the property bubble burst, triggering the sub-prime mortgage crisis.

In his research Professor Gan surveyed 28,000 urban households across China and concluded that supply was running well ahead of demand. He said just 40 per cent of newly constructed homes were required to meet real demand, the remainder being purchased by those betting on property price appreciation.

Multiple properties

In China, families often own multiple properties which they choose not to rent as they believe any capital gains will more than offset lost income. But amid a slowing economy prices posted their first monthly drop in two years in May, as developers began offering discounts as high as 40 per cent.

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Standard & Poor’s expects prices to decline 5 per cent this year, compared to a rise of 11.5 per cent in 2013.

The construction sector is already seeing a sharp slowdown after newly begun homes dropped 25 per cent over the first quarter from a year earlier.

Wang Tao, China economist at UBS, said the figures published by Professor Gan were “plausible".

She agreed that supply was outstripping demand and that the attractiveness of property as an investment was declining. “People have more options now, including investing money overseas and in wealth management products domestically," she said.

Professor Gan said first home buyers made up just 20 per cent of all sales and that property prices were driven by demand from investors.

He said there was 4.2 trillion yuan ($720 billion) in mortgages secured against vacant properties, while unrented apartments accounted for 11.8 per cent of household assets. “This reduces the efficiency of the financial markets and is an enormous waste of social wealth," Professor Gan said.

He said the vacancy rate was similar across China, but higher at 23.3 per cent in the government’s affordable housing program. “We should therefore stop or reduce construction of subsidised housing," he said. The government has pledged to do the opposite and plans to speed up the construction of affordable homes this year, as part of efforts achieve growth of around 7.5 per cent this year. China plans to build 36 million subsidised homes in the five years to 2015.

Fall in sentiment

Sentiment towards the Chinese property sector has changed dramatically over the last three months, as concerns about over-supply spread from regional centres to first-tier cities like Beijing and Shanghai.

One of the biggest jolts to sentiment came from Mao Daqing, a vice-president at the country’s biggest property developer, Vanke Group. In a leaked speech to a private audience in early May, Mao said China didn’t need to build any more apartments.

“I believe that China has reached its capacity limit for new construction of residential projects," he said. Mr Mao came to this conclusion after calculating the number of houses being built annually for every 1000 people in China. “For most developed countries . . . it is less than 12 even when the housing market is hot," he said. “No country has ever had a figure greater than 14."